Will The Fed Snap The Dollar’s Recovery?

Throughout 2021, the U.S. has led the COVID-19 economic recovery and at some point, other countries will close the gap. But for now, vaccination rates in Europe are slow and some countries in Asia are reintroducing restrictions instead of rolling them back like the U.S. This means that in the near term even after an FOMC pullback, the U.S. dollar should outperform. The first-quarter GDP on Thursday will highlight the robustness of the U.S. recovery.

However, it is clear from the price action on Tuesday that investors are not convinced that the Fed is ready to prepare the market for less stimulus. The dollar traded sharply higher versus the Japanese Yen, Australian, and New Zealand dollars but saw little to no gains against the euro, sterling, the Swiss Franc, and Canadian dollars. Currently, the situation in Europe is grim but every day, more people are getting vaccinated. The German government believes that as the traction grows, the recovery will as well and therefore 2021 growth will be 3.5% instead of their former forecast of 3%.

The Australian and Canadian dollars will also be in focus with Australian CPI and CAD retail sales scheduled for release. Both countries are expected to report strong data. Canadian retail sales should rebound sharply along with Australian price pressures.

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